Less Developed Countries (LDCs) | Economics

The following points highlight the top characteristics of Less Developed Characteristics (LDCs). The characteristics are: 1. Low Per Capita Income and Widespread Poverty 2. Shortage of Capital 3. Population Explosion and High Dependency 4. Low Levels of Productivity.

Characteristic # 1. Low Per Capita Income and Widespread Poverty:

The most important indicator of economic backwardness is per capita income. The per capita ‘ income of LDCs is very low. This is why most people in such countries live under severe hardships. They do not get sufficient food to eat, adequate medical care and minimum educational opportunities.

About 40-50 A peo­pled such countries live below the poverty line. In terms of per capita income and living standards not only the gap between the developed and underdeveloped countries is large, but the gap is widening over the years.

For example, in 1991, India’s per capita income (in US dollars) a modest $330 compared to $26,930 in Japan, $23,650 in Germany, $22,240 in the USA, and $20,350 in France. As Colin Clark comments, “Incomes in underdevel­oped countries today are form about one-sixth to one-third of the per capita incomes of the developed countries a century ago.”

Characteristic # 2. Shortage of Capital:

In LDCs like India, there is shortage of capital of all varieties. There is shortage of not only private capital like structures, factories, steel mills, etc., but also shortage of social overhead capital such as roads, highways, railroads, hospitals, schools, etc.

This is largely due to low per capita income and widespread poverty. Since most people are poor they cannot save much. In fact, poor people have a high propensity to consume (or a low propensity to save). Ragnar Nurske has pointed out that most LDCs are caught in a vicious circle of poverty.

A country is poor because it is poor. Low per capita income leads to low saving. Low saving leads to low growth and low growth, in its turn, leads to low per capita income. In fact, low per capita income is both the cause and consequence of poverty.

As H.W. Singer has put it, “An underdeveloped country is poor because it has no industry, and an underdeveloped country has no industry because it is poor”. As Misra and Puri have rightly commented, “on the demand side the small size of the market acts as a disincentive and the potential savers indulge in wasteful consumption which they might not do, if adequate investment opportunities are available.”

There is general agreement among economists on at least one point: of all the factor determining the rate of economic growth and the pattern of development, capital is the most strategic of all. As Benjamin Higgins has rightly remarked: “Capital accumulation is the key to economic develop­ment”.

Whether in a predominantly private enterprise like the American economy or in socialist economy like the Chinese, economic development cannot take place without capital accumulation. So, one point which has been highlighted by development economists is that the low levels of saving and investment (capital formation) act as a major obstacle to growth and development in LDCs.

Characteristic # 3. Population Explosion and High Dependency:

Another major charac­teristic of LDCs is high rate of growth of population. The population bomb has exploded in most such countries, as has been predicted by T. R. Malthus in 1798.

This is due to a twofold reason:

(1) A sudden fall in the death rate in recent years due to increase in medical facilities and growing expenditure on health, as has been highlighted by the World Bank, 1993; and

(2) Almost unchanged or constant birth rate (mainly due to low cost of raising children in rural areas, widespread poverty, ignorance and religious orthodoxy). As a result, population has virtually exploded.

In fact, for most LDCs, growing population seems to be both the cause and effect of underdevelopment. For poor people, living under sub-human conditions, family planning and small family norm have no meaning, as they have hardly any stake in life. Due to poverty, they are quite indifferent to the size of their family.

This in its turn, increases their economic burden and causes greater hardship. As the old saying goes- rich people get money and poor people get children. The overall dependency burden in LDCs is much higher than in developed countries.

Moreover, due to the prevalence of joint family system, lack of adequate employment opportunities both in rural and urban areas, the dependency burden is very high. This, in its turn leads to a fall in saving rate and acts as an obstacle to economic growth. While 2-3 people depend on a single individual in a developed country, at least 4-5 people do so in an LDC.

Characteristic # 4. Low Levels of Productivity:

Another feature of an LDC is low productivity of land, labour and capital. The productivity of land is low for various reasons – institutional, technological and natural. Due to rapid population growth, particularly in rural areas, per capita land availability falls over time.

Again, due to population growth and breakdown of the joint family system, there is sub-division and fragmentation of holdings. Due to overcrowding on land and scattered holdings economies of scale associated with large-scale production cannot be derived in agriculture.

Moreover, in most parts of LDCs, old and traditional methods of cultiva­tion are practised. Governments do not encourage the use of highly capi­tal-intensive methods due to its labour displacement effects. It is apprehended that use of modern implements like tractors, pump-sets and will cause technological unemployment in such labour-surplus countries.

Moreover, they can use threshers seeds and chemical fertilizers. All these as also various other factors – both natural and institutional – (such as institutional dependence on wealth due to lack of irrigation facilities, lack of marketing and credit facilities)-account of low agricultural productiv­ity.

Although agriculture is the dominant sector of the economy (which provides direct and indirect employment to the majority of the population and which makes the maximum contribution to gross domestic product), it is itself in a state of backwardness. Productivity of labour is a so low for various reasons.

Most workers are poor and do not get either sufficient food or adequate medical care. So, they cannot work hard. They are mostly illiterate, unskilled and lack technical training. They do not have sufficient complementary resources such as land and capital to work with.

In short, low productivity of labour is both a cause and effect of the low levels of living in this countries.

As M. P. Todaro has put it, “Low levels of living and low productivity go hand in hand”. It is really difficult, in practice, to identify the cause and the effect.